Jobless claims near lowest level ever — compared to size of workforce

Surprise: The number of people collecting unemployment benefits each week is approaching the lowest level ever.

That is, when adjusted for the size of the U.S. working population.

Over the past month an average of 311,500 people filed new applications for benefits each week. That’s just 0.21% of the 146.2 million people reported to be working, according to the Labor Department’s June survey of households.

The percentage of new jobless claims compared to household employment has only been lower in two other periods, 2000 and 2006-2007. (The government began tracking the claims data in 1967.)

The sharp drop in claims over the past few years is a good sign, of course. It means more people are finding jobs and fewer are getting laid off.

Yet comparing “normalized” jobless claims across eras can be misleading. Consider the recessions of 1973-75 and 1981-82. Normalized jobless claims suggest the labor market suffered even more devastation in those two downturns compared to the Great Recession of 2007-2009. (See the above chart.)

There are big differences, though. Many of the people who lost jobs in the mid-1970s and early 1980s downturns were quickly hired back by the industries that used to employ them. Layoffs tended to be more temporary in nature then than they are now and the labor market returned to normal more rapidly.

No longer is that true. The much slower recovery of all the jobs lost after 2007-2009 recession, for example, left many Americans stranded. The number of long-term unemployed – those without a job six months or more – soared to a record 6.8 million in early 2010. At one point they accounted for 45% of all people unable to find work.

By contrast, long-term joblessness topped out at 25% of the unemployed in the early 1980s and 20% after the 1973-75 recession.

The fallout from prolonged unemployment these days is also worse. Many Americans who joined the ranks of the long-term unemployed because of the 2007—2009 recession eventually ran out of benefits and never found work again. Some hit retirement age and left the workforce and others sought long-term disability benefits.

Even now, some 3.1 million people have been out of work six months or longer. That’s still exceeds the pre-2007 peak of 2.9 million set in 1983. What’s more, they represent 32.5% of the individuals classified as unemployed – still a much higher rate compared to any time prior to the Great Recession.

Until the pool of long-term unemployed shrinks even further, the low level of claims will continue to understate the improvement in the labor market.